Measuring life cycle costs for complex B2B products

Abstract

PurposeThe purpose of this paper is to develop a new interdisciplinary methodology to estimate the life cycle cost (LCC) of complex business-to-business products in order to price different types of maintenance contracts and show the applicability of the method in a case study. LCC comprise of initial capital costs as well of operation costs including probabilistic costs (such as the costs of repairs and spare parts), which are directly linked to the maintenance characteristics of the product.Design/methodology/approachThe paper proposes an integrated and practical methodology that applies different approaches from different disciplines. Therefore, exponential distributions for failure rates in subsystems, World Bank logistics factors for logistics costs of spare part handling, as well implied credit default probabilities for the counterpart risk in full service leasing contracts are applied. In order to validate the applicability of the proposed methodology to practical problems, the tool is applied in three case studies.FindingsThe results of the case studies show that this methodology can be applied to analyze LCC structures of engines operating in various regions with regard to different types of engine maintenance contracts. The results also highlight the interplay of technical as well as financial risks.Originality/valueBecause the literature in maintenance engineering so far either proposes general frameworks to calculate LCC or concentrates on specific aspects of LCC, the paper contributes to the literature in presenting a new interdisciplinary methodology to estimate the LCC.